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What the Iranian Deal Really Means for the Global Economy

Officials from Iran made a deal with six countries (the US, Russia, China, England, France, and Germany)—in exchange for suspending the world's sanctions on Iran, Iran will curb its nuclear weapons program.

Though it's only a six-month interim agreement for now, it's an important first step toward bringing Iran economically closer to the rest of the world.

This is, by any standards, a historic deal (or a historic mistake, according to Iran's archenemy Israel): the United States and Iran haven't had diplomatic relations since 1979.

This is like Wile E. Coyote suddenly signing a peace treaty with the Road Runner.

But the more important question is "Why?" Why did Iran suddenly have this change of heart after pounding the table and claiming that enriching uranium is an inalienable Iranian right?

Is it really as the media portrays? Did the tough American and European sanctions placed upon Iran finally bring the country's leadership to its senses?

As much as President Obama would like you to believe that, we think the answer is far more complicated.

All of these countries have some sort of agenda that they are pushing—and this deal is going to give them exactly what they want. And if you think that this is about "Middle East stability" and "world peace," there is a bridge I would like to sell you.

There is only one thing on the minds of these countries: oil.

Hitting the Jackpot

It is pretty easy to understand why the Chinese are interested: with the one-child policy being relaxed and a constantly growing population, there is no doubt that they're looking all around the globe for secure energy supplies. Given that Iran has one of the world's largest reserves of both oil and gas, it's the perfect location for China to be drilling.

When Iran begins to open up to the world, the Chinese petroleum companies will salivate at the opportunity to unlock some of the largest hydrocarbon fields in the world. While it is true that they'll have to compete with companies around the world, the Chinese are known for their deep pockets and willingness to acquire energy reserves regardless of the cost.

What does Europe get?

If Iran is able to start selling oil on the global market again, Europe gets something crucially important: a source of non-Russian oil.

Russia currently has a stranglehold on European oil and gas supplies (something that we have written much about over the past few years). Though Europe is ramping up its own domestic production, a phenomenon we call the "European Energy Renaissance," it cannot happen overnight. In the meantime, Europe depends on imported oil and gas… and believe it or not, Iran provides a better alternative to the heavy hand of Putin.

Because Iran just wants money for its product, but Putin wants control—both political as well as economic.

The Americans also got something great from the discussions: the continuation of the petrodollar. With a détente around the corner, America can monitor Iran's activities and quietly make sure that the sale of this oil will be denominated in US dollars. The fact that Iran has constantly tried to shift away from the US dollar for petroleum trades has always been a thorn in the side of the US government. By "working closer" with Iran, America will in fact be able to better keep tabs.

But the biggest winners of the day may have been the Russians and the Iranians—because they can now get access to the biggest prize of all.

There's no doubt that Russia and Iran are close: due to the sanctions, much of Iran's military is Russian-built, and there is a great deal of cooperation between the two countries on the oil and gas front.

If Iran does indeed open up its oil and gas fields and invites the multinationals in, it means that the country will have access to the multinationals' technology—the technology to unlock not only the vast conventional potential that Iran already has… but also the unconventional oil and gas that could dwarf Iran's current reserves.

We are talking about access to not just billions, but even trillions of barrels of oil.

"Open Sesame"—Unlocking Ali Baba's Treasure

America, rather than Russia, leads the world in unconventional oil and gas production. But more importantly, they lead the world in the technology it takes to unlock the complicated geology that lies beneath the Earth's surface.

The ability to extract vast quantities of oil means energy independence or, in the case of Iran, even more oil and gas available for exports and to fill the country's coffers.

So by inviting "the Great Satan" inside its borders, Iran will be able to acquire this valuable technology and begin to apply it.

And once everything has been built, it would only take a flick of a pen to evict the American companies.

The Russians would also be able to take this technology and apply it within their own borders… so that they can begin expanding their hydrocarbon empire beyond the boundaries of Europe.

It is clear the biggest loser in this negotiation is Israel. There is nothing they can do but stand by and watch. But Israel won't show its cards until the six-month treaty expires.

The key to how this plays out for the US is how Iran acts the day after the six-month treaty is over. Will Iran continue under the same terms? If not, will Israel tolerate it?

So How Can We Profit?

By investing not in the companies that will be physically producing oil within Iran's borders, but in the ones that will provide all the necessary services… the picks and shovels of the business, so to speak.

And we already know the ones that the big multinational companies like Shell and Exxon (XOM) will turn to.

Want to find out which ones? Read all about it in the December issue of Casey Energy Dividends. Sign up now for a risk-free trial and begin profiting from the biggest diplomatic agreement in the past decade.

DISCLOSURE:
The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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